If the auditor determines that an effective compensating control does not exist, or tests of controls show that the compensating control is not functioning as designed, _______.
A)the auditor revises the overall audit risk assessment for the related account and assertion, and the planned audit strategy
B)the auditor makes no changes to the overall audit risk assessment for the related account and assertion, and the planned audit strategy
C)the auditor concludes that internal control is weak, and issues an appropriate opinion
D)the auditor would lower inherent risk surrounding the engagement as a whole

Question

Quizplus · Accepted Answer

If an effective compensating control does not exist or is not functioning as designed, the auditor should revise the overall audit risk assessment for the related account and assertion, and the planned audit strategy. This is because the control environment is weaker than previously assessed, which affects the reliability of the financial statements. Lowering inherent risk surrounding the engagement as a whole (option D) may not be appropriate without further analysis and may not adequately address the weaknesses in internal control. Concluding that internal control is weak and issuing an appropriate opinion (option C) may be premature if there are alternative controls that the auditor can rely on. Therefore, option A is the best choice.

If the Auditor Determines That an Effective Compensating Control Does